Customs, Excise and Gold Tribunal - Mumbai
Indian Farmers Fertilizer ... vs Collector Of Customs on 17 December, 1985
Equivalent citations: 1986(26)ELT778(TRI-MUMBAI)
ORDER K. Gopal Hegde, Member (J)
1. The Revision Application filed before the Government of India against the Order bearing No. 37 of 1980 dated 17-1-1980 passed by the Central Board of Excise & Customs, statutorily stood transferred to the Tribunal for being heard as an appeal.
2. The undisputed facts are:
The appellants, M/s Indian Farmers Fertilizer Co-operative Ltd., imported 3 packages containing 3 coils of inconel strips valued at Rs. 2,36,858/- and sought clearance against their licence dated 23-8-1977. The Customs however, objected to the clearance on the ground that the strips imported were neither cut to shape and size nor intended to be cut to size to form parts of machine, and therefore, the imported strips could not be considered as spare parts of machine in terms of para 52 read with para 53 of the Policy AM-78. The Additional Collector of Customs, Bombay, held the enquiry. On behalf of the appellants it was contended before the Additional Collector that the imported materials were required for the use of the imported machinery in their own plant. They are to be used for wrapping round the header wherever the earlier wrappings would have worn out. They contended that the imported goods were spare parts within the meaning of para 54 of the Policy AM-78. They also contended that all that is required was to cut the lengths to the required length for use. The Additional Collector, however, did not accept this contention. He observed:
"it is not clear how this wrapping is simply going to stay without being given some shape and joining to the pipe. It is therefore clear that the sheet cannot be used by simply wrapping it around and would need specific shape to be given in order to keep one pipe properly wrapped. Apparently joining will also be inescapable. Therefore strictly speaking it cannot be covered under the description of permissible spares".
In that view of the matter the Additional Collector ordered confiscation but allowed redemption on payment of a fine of Rs. 50,000/-. Feeling aggrieved by the order of the Additional Collector the appellants preferred an appeal before the Board. They urged that the pipe in the Ammonia Reformer have to withstand heat of 1000°c inside the pipes. In order to check heat loss, the pipes are covered with inconel sheets which are heat resistant. The inconel sheets fitted to the pipes constantly get worn out and need replacement. The consignment imported comprised inconel strips/wires in running length so that they could be cut in accordance with the length required and where the existing strips covering the pipes needed replacement, the strips have to be bent according to the circumference of the pipes and fitted around them. The advantage of importing in running length is that they could cut the strips according to the requirement and the extent of damage in the existing strips. After cutting the required size, the strips are bent and wrapped on the pipes of Ammonia Reformer. They urged that the goods imported should be treated as permissible parts as explained in paragraph 54 read with para 52 and 53 of the 1TC Policy AM-78. The learned Member of the Board who heard the appeal passed the following order:
'The Board observes that bonafide of the importation is not in doubt. However, the licence produced by the importers covered 'permissible spare parts of machinery, imported or indigenous, having imported components'. The goods in the form they were imported were not identifiable as spare parts. Para 54 of the ITC Policy AM-78 clearly says that the items such as plates and sheets etc. which are required to be fabricated for manufacturing spare parts will not be treated as spare parts. In this case, the strips imported had to be converted into covers for the pipes which were in the nature of spare parts. The penal action taken by the Additional Collector of Customs was, therefore, correct in law and on facts. The Board however, reduced the fine from Rs. 50,000/- to Rs. 25,000/-.
As stated earlier it is the Board's order that is the subject matter of challenge in this appeal.
3. Shri Lachman Dev, Consultant appearing for the appellants submitted that, the view taken by the authorities below that the imported goods are not spare parts and they cannot be used by merely cutting and bending is erroneous. He further urged that the authorities below have not properly interpreted the provisions of paras 52, 53 and 54 of the Policy AM-78. The observation of the Board that spare parts, the import of which could be permitted should be identifiable spare parts: is nowhere laid down in the Policy. He further urged that cutting of strips into small bits to suit the requirements could not amount to fabrication. Running length had been imported because it is not possible to know the required length and width of the strip without stopping the machine. Further, the fabrication should result in a different article, in any case the fabricated item will not have the same identity as the original article but in their case the original article does not loose its identity. The strips are only cut into bits according to the requirements and they are wrapped by suitably bending in the form of a clamp. He also submitted that the Board had recorded a finding that the bonafide of the importation was not in doubt. Having held so the Board ought to have set aside the entire fine. Shri Lachman Dev also urged that the licence was an actual users licence and in terms of the Policy they could have imported the goods in question and thereafter could have made use of for the required purpose and in that case the Customs could not have objected for the import. In support of his contention Shri Lachman Dev placed reliance on item 75.03 Section II of the Policy AM-78.
4. Shri Pal, the learned Departmental Representative however, urged that the imported goods are not spare parts. They cannot be used as spare parts by merely cutting into bits. He relied upon the observation of the Additional Collector. Shri Pal also contended that as observed by the Board the licence was for the import of permissible spare parts of machinery and the goods imported cannot be considered as permissible parts of machinery. Shri Pal also urged that the goods imported cannot fall under Clause (a) of para 54 of the Policy AM-78 since the items mentioned therein have a shape of their own and they could be used as they are without further processing. Shri Pal urged that considerable leniency has been shown by the Board in the matter of fine and no further leniency is called for.
5. I have carefully considered the submissions made on both sides and perused the records of the case. The short question for consideration is whether the order passed by the Additional Collector and confirmed by the Board in so far as it relates to the confiscation requires to be interfered with. Undisputedly imported goods were the coils of inconel strips. The contention of the appellant all along was that the strips imported are required for wrapping the pipes in Ammonia Reformer in order to check the heat loss. They had contended that inconel sheets fitted to the pipes constantly gets worn out and needs replacement. It appears that the appellants before the adjudicating authority had produced a diagram of the machine which has been in use. Neither the Additional Collector nor the Board recorded a finding that the appellant's contention, that the pipes in the Ammonia Reformer were covered with inconel sheets was not correct. They also did not record any finding that inconel sheets fitted to the pipes would not get worn out or that they would not require replacement. The contention of the appellants that they used the strips by cutting into different lengths and bend according to circumference of the pipes and fitted around them has not been properly considered. The Additional Collector no doubt had observed 'it is not clear how this wrapping is simply going to stay without being given shape and joining to the pipe. He did not call upon the appellants to explain the process by which they make the strip to stay in the pipe or on the pipe. If the Additional Collector had any doubt as to the contention of the appellants that the only process required was cutting the strips into bits and bending them he should have either asked the appellants to demonstrate or obtain some expert opinion. Though the Board has recorded a finding that the licence was for permissible spare parts of machinery and that the goods imported were not identifiable spare parts, the Additional Collector did not hold that the goods were not covered by the licence.
6. The expression 'spare' is not defined in the Policy AM-78, but in the Policies of the later years we find the definitions of the expression 'spare' as well as 'part'. In the Policy AM-80 the expression 'spare1 is defined:
'Spare' means a part or sub-assembly for substitution, i.e. ready to replace an identical/or similar part or sub-assembly, if it becomes faulty or worn out, and includes an accessary (or attachment) in the same regard'.
(See Chapter 2 para 5(11) ).
'Part' means an element of a sub-assembly or assembly, not normally useful by itself and not amenable to further disassembly for maintenance purposes. (It could be a component, spare or accessary depending upon the nature or its use/requirement).
The expression 'accessory' is defined as under:
'Accessory' (or 'Attachment') means a part sub-assembly or assembly that contributes to the effectiveness of a piece of equipment without changing its basic functions'.
7. Paragraph 52 of the Policy AM-78 allows 'import of permissible spares meant for maintenance of imported machinery or imported parts of indigenous machinery under free licensing scheme as provided in Appendix 2, subject to the conditions set out under the said paragraph.' Paragraph 53 of the said Policy provides "the term 'permissible spare parts' for import under free licensing scheme will include all spare parts except those which are specifically shown as non-permissible under the Policy for actual users in Section II of this book. (In this paragraph the spares which are not permissible or banned for import are also set out). It further provides that import of consumable spares will also not be allowed under the scheme".
Paragraph 54 reads as under:
'Spare parts are those parts of machines which because of wear and tear, use or breakage, need replacement. They may include materials: (a) like pipes and tubes, electric cables, wires, hoses and beltings imported in length which have merely to be cut to the required size or bent before being used;
(b)...
(c)...
8. However, the items such as plates and sheets etc., which are required to be fabricated for manufacturing spare parts and such complete units which are installed separately will not be treated as spare parts.
9. The combined reading of paragraphs 52, 53 and 54 would make the following positions clear:
(1) The Actual Users (Industrial) are permitted to import permissible spares meant for maintenance of the imported machinery or imported parts of indigenous machinery under free licensing scheme as provided in Appendix 2.
(2) Permissible spare parts will include all spare parts except those which are specifically shown as non-permissible under the Policy for Actual Users in Section II of this book.
(3) Spare parts are those parts of machinery which because of wear and tear, use or breakage needs replacement.
(4) Items such as plates and sheets which are required to be fabricated for manufacturing spare parts will not be treated as 'spare parts'.
10. The first question that arise for consideration is whether the goods imported are "spare parts'. Now according to paragraph 54 'spare parts' are those parts of machines which because of wear and tear use, or breakage, need replacement'. The appellants contention all along has been that the sheets which they cut into bits are required as replacement as the inconel sheets fitted to the pipes in the Ammonia Reformer gets worn out and needs replacement. Their contention that sheets fitted to the pipes in the Ammonia Reformer gets worn out and needs replacement was not controverted. Similarly, their contention that sheets imported would be required for being fitted to the pipe as replacement also had not been challenged. Therefore, the sheets imported qualify as spare parts. It may abe pointed out that according to paragraph 54 the 'spare parts' may include materials, such as pipes, tubes, electric cables, wires, hoses and beltings imported in length which have merely to be cut to the required size or bent before being used'. Shri Pal's contention was that the items mentioned in Clause (a) of paragraph 54 have a shape of their own and they could be used as they are without any further processing. Now one of the items included in Clause (a) is wires. The wires could be imported in lengths. Its use could be only by cutting to required size or bending before being used. If the wires could be considered as 'spare parts' the strips used for replacement of the existing strips can also be considered as spare parts. What was not treated as spare parts under paragraph 54 are those items such as plates and sheets which are required to be fabricated for manufacturing spare parts and such complete units which are installed separately. The Additional Collector did not record a finding that the sheets imported required to be fabricated in order to become a spare part. The Board has observed 'the strips imported had to be converted into covers for the pipes which were in the nature of spare parts. The Board did not record a finding that the conversion amounts fabrication and by fabrication the spare parts are manufactured. The expression 'fabrication' is defined in McGraw-Hill Dictionary of Scientific and Technical Terms, Third Edition as (1) The manufacture of parts, usually structural or electromechanical parts, (2) The assembly of parts into a structure'. The process of cutting a strips into bits or bending cannot be considered as a manufacturing process. The appellants had contended that no fabrication is required to be done for using the strips in the pipes. Neither the Additional Collector nor the Board had recorded a finding that without fabricating the strips cannot be used.
11. Paragraph 53 no doubt prohibits import of consumable spares, but then the objection of the department was not that the strips imported are consumable spares. The objection was that it is not at all a spare or it cannot be used as spare part. The Board seems to be of the opinion that a spare part is only the pipe in the machine and not the strip in the pipe. This view appears not correct having regard to the definition of the spare given in the subsequent Policy, and having regard to the clear elucidation of spare parts in paragraph 54. Paragraph 54 is clear, explicit and admits of no doubt. It states spare parts are those parts of machine which because of wear and tear, use or breakage needs replacement. The appellants' contention is that the strips inside the pipe gets worn out and needs replacement. Therefore, the strips can be spare parts within the meaning of paragraph 54. Since the import was not objected on the ground that it is a non-permissible spare part or a consumable spare, the order of confiscation is bad in law.
12. In the result this appeal is allowed, the order of confiscation is set aside and the fine if any paid shall be refunded to the appellants.